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$1 million lost in water billing error

The City of Shreveport inadvertently billed thousands of residential water users for less than they actually owed for 17½ months, costing the city about $1 million in lost revenue, city officials said this week.

The City of Shreveport inadvertently billed thousands of residential water users for less than they actually owed for 17½ months, costing the city about $1 million in lost revenue, city officials said this week.

The water customers who received incorrect bills were among the city's heavier users of water, meaning generally larger homes.

The error was fixed for the August billing cycle, after it was brought to the city's attention by people not connected with city government. But city officials kept the matter quiet, disclosing it only to the mayor, the city attorney and the city employees needed to correct the error.

Most city council members were not informed, Mayor Ollie Tyler said, because the error is under investigation.

“We’ve been trying to complete the investigation, and we’ve not done that yet,” Tyler said in an interview. “As soon as that is done, I plan to make sure the public understands what we faced with this situation."

The billing error resulted from water rate increases implemented after the City and the U.S. Environmental Protection Agency came to a settlement for a federal court consent decree in 2013 that required the city to invest tens of millions of dollars to fix crumbling water and sewer infrastructure. As part of the consent decree, the city had to demonstrate that it had sufficient funds to fix the water and sewer systems.

The city's nondisclosure may have stemmed in part from the way in which the city learned about the billing error. A Shreveport businessman, a former city attorney and a Baton Rouge company that provides consulting services to local governments brought the error to city officials' attention in April – after demanding payment over four years totaling about $1 million.

Tyler said the demand for payment amounted to being "blackmailed." The people who discovered the error said their expectation for payment was reasonable.

A lawsuit may result.

Tyler said the city will not bill city residents for the amounts they were under billed.

The error

Following the consent decree, the city council initially approved across-the-board water rate increases that charged the city's more than 60,000 residential water customers a flat rate per unit of water used. Then in 2015, the city changed course and adopted an ordinance for a tiered approach to billing for water use. The ordinance was intended to encourage water conservation while still generating the needed revenue for the city's consent decree projects.

The tiered system separated residential water users into four groups. Rates were decreased for low-volume consumers in the two lower tiers. Rates were increased for high-volume users in the two higher tiers.

The error occurred during implementation. The tiers were set up incorrectly in the city software used for billing water customers. The result was that some higher-volume users were billed at lower-volume rates, starting in February 2015.

The error in water usage rates illustrated. High volume users were underbilled from February of 2015 until August of 2016.(Photo: Lex Talamo)

Soon after, Shreveport businessman Scott Pernici noticed what he thought was an anomaly in his personal water bill. He couldn't align the amount the bill said was owed with the new tiered rates. Along with former Shreveport resident Michael Wainwright, Pernici said he collected and analyzed an estimated 500 water bills from friends and family and noticed continued discrepancies over several months.

They brought in Charles Grubb, a former Shreveport city attorney, and Justin Haydel, chief executive of the Manchac Consulting Group in Baton Rouge. Eventually, their analysis led them to discover how the city had incorrectly bracketed water users during implementation of the rate changes in the billing software.

The conflict

Grubb then went to City Attorney William Bradford to report that they had “confidential information” that might benefit the city, according to documents provided by Pernici. Grubb asked for an audience with the mayor.

He also outlined the compensation package they wanted to get should the city decide to act upon the “confidential information"— an amount which they set at one-quarter of the additional revenue the city would collect in the first four years.

“The very nature of this discussion gave me pause,” wrote Bradford, in a letter written to Wainwright dated Aug. 30. “I set forth to Mr. Grubb that I was uncomfortable proceeding with any discussion until I received some background information.”

Wary of disclosing their discovery without a way to protect the information, the group asked Bradford to sign a nondisclosure agreement barring the city from using the information. The agreement's language included a financial penalty of “the greater of $10,000 or 25 percent of all savings or increase in revenue” gained by the city through use of the information. Bradford signed the agreement in April and was given information about the billing error, Pernici said.

On June 8, Water & Sewerage Director Barbara Featherston and Chief Administrative Officer Brian Crawford also signed nondisclosure agreements. They also were then given information about the origin of the water rate error.

Soon after, the city began work to fix the problem. On July 8, Bradford told Wainwright that the city would consider paying a one-time fee of 10 percent of the under-billed amounts from Feb. 15, 2015, when the first bills with incorrect rates were sent to water customers, through Aug. 1, when the billing rates were corrected.

Ten days later, Manchac offered a counter-proposal and asked to have a contract finalized by Aug. 1 but never received a response, according to Wainwright’s letter.

“Absent such an agreement, we will reluctantly accept an adversarial role,” Wainwright wrote. “Fulfilling that role will not be possible without all of this being made public.”

Tyler told The Times she viewed the threat of “going public” as a precursor to blackmail.

“If we didn’t pay and do the contract, they would go public," Tyler said. "In my mind, that’s extortion and blackmail, and that is something I would never do on the backs of the citizens in Shreveport.”

In a phone interview, Wainwright said he was "flabbergasted" by the Mayor's allegations of blackmail.

"There was never an attempt to force them to do anything," Wainright said from North Carolina, where he now resides. "All we asked was for some reasonable compensation. I don't understand why they took the position they did. Perhaps they were embarrassed that they had made such a costly error that had gone on for a year."

In an Aug. 29 email, Tyler suggested to Bradford that the city consider sharing the information about the water rate error with city council members. But no such disclosure was made. Tyler said only Council Chairman Willie Bradford has since been told.

William Bradford, the city attorney, said approval of future municipal bonds to provide money for the water and sewer improvements required under the consent decree will not be impacted by the water rates error. The city has always been able to maintain its bond covenants, Bradford said, and is in a position to continue doing so.

“There’s no issue related to the city’s ability to service the debt [or] coverage related to the bonds. We conferred with bond counsel. We’ve made those representations to the market and they’re accurate,” Bradford said. “This is strictly an issue of us correcting a human error and trying to do what’s in the best interest of the city.”

THE ISSUES

City officials and the people who discovered the billing error disagree over whether the city acted properly in fixing the billing error without informing them and over how much it must pay. The main points of the conflict:

COMPANY’S CLAIM

CITY RESPONSE

The matter of payment

“We have been dismissed, or characterized as adversaries, because we had the audacity to request a reasonable compensation that would be paid out of a portion of the first four years’ of new dollars.”

“This was an error that was easily corrected internally. The value that these individuals are attempting to gain is very disproportional to the service they provided, to the potential value of any information.”

Violating the Non-disclosure agreements

“Our expectation was that the City would be only too happy to reasonably compensate us by paying a reasonable percentage of this “new found” money for a limited time period. The City has, without our consent, utilized the confidential information in order to correct billings.”

“It is unfathomable that an organization such as Manchac or an individual as well versed in municipal law as you could expect the City of Shreveport not to properly enforce its own laws when a misapplication of that enforcement is brought to its attention.”

Noncompliance with Ordinance 164

“The City was not only in violation of its own ordinance, but that error was resulting in revenue shortfalls that impacted the City’s debt servicing of the bond financing used to fund remedial actions to comply with the City’s consent order regarding water & sewerage upgrades.”

“Were we out of compliance? We were out of compliance without knowing we were out of compliance. You can’t fix something you don’t know is wrong. When we discover that errors have been made, we correct them and we keep going.”

Sources: public records documents and in-person interviews. Company responses from Michael Wainwright; City responses from Mayor Ollie Tyler and City Attorney William Bradford.